Mortgage fraud on the increase, report says

03.18.09
By Sarah Beldo

Much has been written about how a variety of ripple effects from the uncertain economy are keeping Americans from entering the housing market.

Now, the authors of a new report suggest tightened lending criteria may have contributed to an uptick in the number of prospective homeowners, mortgage brokers and lenders falsifying mortgage applications.

Incidents of home loan fraud rose by 26 percent over the course of 2008, according to figures from the Mortgage Asset Research Institute. This rise occurred even as the overall number of loans granted by lenders fell.

"With fewer loan originations today, the data suggests that the economic downturn may have created more desperation, causing more people than ever before to try to commit mortgage fraud," commented Denise James, one of the authors of the report.

In a conference call with reporters, James also noted that some of the increase could be attributed to more aggressive reporting of attempts to commit fraud, CNN Money reports.

There are different types of mortgage fraud and the crime may be perpetuated by a number of people involved in the loan process, including the lender, mortgage brokers, appraisers and borrowers.

The leading type of fraud incidents noted by the MARI involved lying on applications, followed by fraudulent tax returns and financial statements. Valuations, verifications of deposit, verifications of employment, escrow or closing costs and credit report fraud incidents rounded out the list.

Over the past several months, most mortgage lenders have tightened their loan criteria, requiring higher credit scores, additional proof of income and a larger down payment.

Financial institutions say these measures have been implemented in part to counterbalance the lax standards of previous years, which most analysts blame for the current wave of foreclosures and plunging house prices.

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Tighter lending restrictions may be causing more people to falsify mortgage application documentation.